Morningstar DBRS Confirms All Credit Ratings on RLGH Trust 2021-TROT

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-TROT issued by RLGH Trust 2021-TROT as follows:

-- Class A at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The credit rating confirmations and Stable trends reflect the stable performance of the collateral, which remains in line with Morningstar DBRS expectations at issuance. The loan is collateralized by the borrower's fee-simple and leasehold interests in 53 properties, including 48 flex industrial properties, three industrial properties, one 7.06-acre parcel of land, and one unanchored retail strip center, totaling approximately 2.6 million square feet across six business parks in the Raleigh-Durham region of North Carolina. The $299.3 million transaction is sponsored by a joint venture partnership between Equus Capital Partners, Ltd. (Equus) and Corebridge Real Estate Investors (formerly AIG Global Real Estate Investment Corp.), who contributed $132.9 million in cash equity to acquire the portfolio and close the subject transaction.

The two-year floating-rate, interest-only underlying loan had an initial maturity in April 2023 and was structured with three one-year extension options. The loan currently matures in April 2025 and has one remaining extension option with a fully extended maturity in April 2026. The borrower is required to purchase a replacement interest rate cap agreement in order to maintain a minimum debt service coverage ratio (DSCR) of 1.20 times (x) as part of each extension.

As of the January 2024 remittance report, there have been no property releases to date. The transaction is structured with a partial pro-rata and sequential pay structure, allowing for pro-rata paydowns on the first 30% of the unpaid principal balance. While property releases are permitted, they are subject to several conditions. The release price is set at 110% of the Allocated Loan Amount (ALA) for the initial 10% of the original loan balance, 115% of the ALA for the portion between 10% and 20% of the original balance, and 125% for the remaining 80%. Furthermore, upon the release of any property, it is essential to meet established debt yield thresholds for the remaining collateral within the trust. If the debt yield for the trailing 12-month (T-12) period preceding the execution of the extension falls below 8.5%, the remaining collateral must meet the greater of the closing debt yield of 7.9% or the T-12 debt yield figure. Conversely, if the T-12 debt yield is equal to or exceeds 8.5%, the remaining collateral is required to achieve the T-12 debt yield figure. The implied debt yield as of the net cash flow in the servicer-reported year-end (YE) 2023 financials is 8.96%.

The collateral portfolio benefits from its diversified tenant roster, with only seven of the 53 properties presently leased to single-tenant users. At the time of issuance, the portfolio was leased to 306 distinct tenants across various industries. According to the December 2024 rent roll, the portfolio's occupancy rate was 98.6%, up from 95.2% at issuance. As indicated by Reis, the Raleigh-Durham market, commonly referred to as the Research Triangle, reported a vacancy rate of 4.9% for industrial properties as a whole as of the third quarter of 2024, and projects that figure to slightly decline to 4.8% by the end of 2026. Based on the December 2024 rent roll, tenants representing approximately 21.0% of the combined square footage across the portfolio have lease expiration dates prior to the fully extended maturity date in April 2026. For F2023, the portfolio's net cash flow (NCF) was reported at $25.7 million by the servicer, which reflects a debt service coverage ratio (DSCR) of 1.21x. This compares with the Morningstar DBRS issuance NCF figure of $21.7 million, representing a DSCR of 3.74x, and the YE2022 NCF figure reported by the servicer of $23.4 million with a DSCR of 2.22x. The cash flow growth since YE2022 can be largely attributed to an increase of $7.6 million in expense reimbursements since that time and a decrease in the operating expense ratio from 28.4% in 2022 to 24.7% in 2024.

In the analysis for this review, the Morningstar DBRS value of $289.3 million derived at issuance was considered. That figure is based on the Morningstar DBRS NCF figure of $21.7 million and a cap rate of 7.5%. This results in a loan-to-value (LTV) ratio of 103.4% and compares with the issuance appraised value of $451.7 million and an LTV of 66.2%. Morningstar DBRS maintained a total positive qualitative adjustment of 6.0% to reflect the portfolio's stable performance since issuance, healthy occupancy and cash flow, and strong market fundamentals.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at (August 13, 2024; https://dbrs.morningstar.com/research/437781).

Class A-IO is an interest-only (IO) certificate that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (December 13, 2024; https://dbrs.morningstar.com/research/444617).

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
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Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

--North American Single-Asset/Single-Borrower Ratings Methodology (December 13, 2024; https://dbrs.morningstar.com/research/444612)

--Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024; https://dbrs.morningstar.com/research/439702)

--Legal Criteria for U.S. Structured Finance (December 3, 2024; https://dbrs.morningstar.com/research/444064)

--North American Commercial Mortgage Servicer Rankings (August 23, 2024; https://dbrs.morningstar.com/research/438283)

--Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024; https://dbrs.morningstar.com/research/428623)

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.